Zions Bancorp

(ZION) - Get Report

on late Monday reported a $498 million fourth-quarter net loss, mainly from writedowns on goodwill and impairment losses on securities.

The $55 billion Salt Lake City, Utah, holding company also lowered its quarterly dividend on common shares to 4 cents from 43 cents.

The net loss of $4.36 per diluted common share was fueled by a non-cash impairment writedown on goodwill -- which represented accumulated premiums paid by the company for acquisitions -- of $354 million or $2.97 per common share.

The impairment and valuation losses on securities totaled $204 million, or $1.07 per share.

Exclusive of these items, the company's "fourth-quarter loss from core banking operations" was 32 cents per common share, which exceeded the Thomson Reuters analyst consensus estimate of a loss of 30 cents per share.

CEO Harris Simmons pointed out that the goodwill impairment charge had no effect on the company's capital ratios.

On a generally weak day for bank stocks, the market anticipated the company's results, pushing shares down 10% to $12.19. The S&P 500 Financials index was down 2% on the day.

Loan Quality

Like most large holding companies, Zions does not include loans past due 90 or more days, but still accruing interest, as "nonperforming assets."

If these loans were included, nonperforming assets, including nonperforming loans, restructured loans and repossessed real estate, totaled $1.27 billion as of Dec. 31, or 2.31% of total assets. The nonperforming assets ratio increased from 1.89% in September and 0.68% at the end of 2007.

Net loan charge-offs for the fourth quarter (mainly construction and land development loans) totaled $180 million, for an annualized ratio of net charge-offs to average loans of 1.71%. The company's fourth-quarter provision for loan loss reserves was $285 million, keeping well ahead of the pace of charge-offs.

The Dec. 31 ratio of loan loss reserves to total loans was 1.64%, which indicates the company may be forced to continue provisioning for loan losses at an elevated pace through 2009.

Capital and Liquidity

With $1.4 billion in new capital raised when Zions issued senior preferred shares to the Treasury through the Troubled Asset Relief Program, the company's capital ratios improved during the fourth quarter, despite the net loss. The tier-1 risk-based and total risk-based capital ratios were 10.52% and 14.71% as of Dec. 31, up from 8.07% and 12.30% in September.

During the fourth quarter, Zions continued its push to replace short-term borrowings with deposits, primarily by pursuing brokered money market deposits. With short-term interest rates continuing to decline, the company was able to maintain a very competitive net interest margin of 4.20% during the fourth quarter, compared to 4.13% in the third quarter and 4.27% in the fourth quarter of 2007.

Dividends

Before bank holding companies began to announce fourth-quarter earnings,

TheStreet.com

discussed likely candidates for dividend cuts, highlighting the 10 bank holding companies that were profitable for the year-to-date period ending Sept. 30, with the

highest dividend payout ratios

. Zions didn't make that list, but the company's dividend payout ratio for the first three quarters was a high 67.57%, according to Highline Financial.

While the dividend of 43 cents per common share was maintained in the fourth quarter, the market's confidence in the company's likelihood of maintaining the dividend had clearly eroded. Shares yielded 14.11% at Monday's market close, based on the fourth-quarter dividend.

Zions addressed that concern after Monday's close, announcing its board of directors had declared a 4 cent dividend for the first quarter of 2009.

Other regional holding companies that cut dividends recently include

Fifth Third

(FITB) - Get Report

,

SunTrust

(STI) - Get Report

and

Marshall & Ilsley

(MI)

.

Yield-hungry investors who have confidence in the company's capital strength and ability to return to profitability might still be tempted by the company's preferred issues. For example, Zions Bancorp's Series C non-cumulative preferred were issued on July 3, with the company raising $47.5 million. The shares have a 9.5% coupon, which translates to a yield of $10.65% at Monday's close of $22.30.

Of course, investors need to consider preferred shares very carefully in the current environment, especially when the dividends are non-cumulative.

Philip W. van Doorn joined TheStreet.com Ratings., Inc., in February 2007. He is the senior analyst responsible for assigning financial strength ratings to banks and savings and loan institutions. He also comments on industry and regulatory trends. Mr. van Doorn has fifteen years experience, having served as a loan operations officer at Riverside National Bank in Fort Pierce, Florida, and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a Bachelor of Science in business administration from Long Island University.